Radical Overhaul of Business Rates Needed

The FSB finds that some of its members pay more in business rates than they do in rent, prompting a call for a radical overhaul of the rates system…

A poll of members of the Federation of Small Businesses (FSB) has found some interesting facts about business rates.

20% of FSB members polled are paying full business rates and a further 30% receive some form of benefit such as small business rate relief or rural rate relief.

6% of businesses polled said that their business rates and their rent were about the same.

The worrying figure for the FSB though was that 7% of the firms were paying more in business rates than they were paying for renting their premises.

With this figure in mind, business rates need a radical overhaul, says the FSB.

The business group believe that the current rates regime is not just a burden on firms but is also overly complex. Furthermore, whilst business rates generate massive amounts of revenue for central government, they are not linked with economic activity and for this reason the FSB would like to see action taken.

This September, the business rates will be reviewed again and the FSB is concerned that inflationary changes will be taken from the Retail Price Index (RPI) whereas other methodologies use the Consumer Price Index (CPI) instead.

The FSB believe that by changing indexation from RPI – historically nearly always the higher figure – to CPI will help small businesses to compete on the High Street.

It’s not just the business group that recommend this approach. When Mary Portas issued her Review of the High Street as long ago as late 2011, she too recommended stabilising business rates.

John Allan, National Chairman of the Federation of Small Businesses, said of the findings:

"The current rating system is a blunt tool for maintaining the Government’s income even when everyone else’s is shrinking. It takes no account of ability to pay, or changes to economic conditions. It is based on rental values but only adjusts its valuation assumptions every five years. Its treatment of empty property is tantamount to a tax on no income, and it continues to use RPI for annual tax increases because it is normally above the Governments official measure of inflation, CPI. The FSB wants to see a level playing field for all businesses."

Allan continued, highlighting that higher business rates were threatening the livelihoods of some business owners.

"There is no doubt small businesses across the country are struggling for survival. I recently heard of a restaurateur in Southport facing closure because of the unacceptable costs. Indeed, business rates are one of the highest costs for most business after wages and rent, and for seven per cent of small business, business rates were actually higher than rent."

The FSB’s National Chairman added that the government will need to look at the business rates regime again in the Autumn before another round of rises further damages the country’s small businesses:

"Businesses will continue to be lost as a result of this outdated and unfair system. The Autumn Statement will need a wide range of measures to target relief at businesses most in danger, and it will need to talk to business about a major overhaul of the system. It doesn’t work anymore; it is crushing small businesses and killing the high street. That surely can’t be right."

Some businesses are struggling so much with business rate payments that they’re ending up in court, further adding to their woes. Business rates have apparently risen by £2 billion over the last two years with five years of no growth and two recessions.

Recent figures from retail evangelist Bill Grimsey indicate that one in seven retailers are being taken to court over late payment of business rates and small businesses need a break in the Chancellor’s next Autumn Statement.

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